March CPI-U numbers released: Neutral on April 2020 issue I Bonds
As always, now (along with the release of the September CPI-U) is one of the best times to consider purchasing I Bonds. The reason for this is that we now know what the rate of return for April 2020 I Bonds will be for both the first and second six month periods, which is important since I Bonds must be held for 12 months before they can be redeemed.
Using the CPI-U data from September 2019 (256.759) and March 2020 (258.115) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for April 2020 issue I Bonds.
That means these bonds would earn a composite rate of 2.22% (using 0.2% fixed & 1.01 variable) for the first 6 months and 1.26% (using 0.2% fixed & 0.53% variable) for the second 6 months. Based on this, April 2020 issue I Bonds are a reasonable alternative when compared to something like the 12 month CD @ 1.90% APY currently being offered by Live Oak Bank.
While the composite rate is competitive, I believe the focus should be on the 0.2% fixed rate. As we saw when deposit rates plummeted during the 2008 financial crisis, the I Bond fixed rate remained at 0% for a three year period from November 2010 through November 2013. I believe we will be see the beginning of a similar Coronavirus-fueled trend when May 2020 I Bonds are available for purchase in a few weeks. I'm considering maxing out my 2020 limit by the end of the month while redeeming some older ones with a 0% fixed rate. In short, if you're considering buying I Bonds in 2020, I'd suggest buying before the end of April.